Valuation Multiples, Business Sale Timeline and Deal Structure in 2020: A Brief Overview

Let’s review some of the most important items that buyers, sellers, and advisors focus on when discussing the prospective sale or acquisition of a business.

Multiples Paid for Businesses (by Transaction Value):

Transaction SizeMultiple PaidSDE/EBITDA
<$500,0002.0xSDE
$500K – $1MM2.8xSDE
$1MM – $2MM3.3xSDE
$2MM – $5MM4.3xEBITDA
$5MM – $50MM5.8xEBITDA

These multiples are largely HOLDING STEADY. As you can see from the chart below, the multiples have not fluctuated tremendously in the past 5-6 years. They have continued to consistently increase for larger transactions.

Multiples by transaction size since 2014.

Time To Close

Transaction SizeAverage Time Engagement to Closing
<$500,0007 Months
$500K – $1MM7 Months
$1MM – $2MM9 Months
$2MM – $5MM9 Months
$5MM – $50MM11 Months

Unfortunately, the time it takes to close is INCREASING. In fact, it has risen, on average 2.2 months since 2013. The increase is the most pronounced in smaller transactions and largely due to financing constraints and buyer due diligence periods, which have become extended as the cycle of economic prosperity has lengthened.

Deal Structure

ComponentAverage Percentage of Transaction
Cash at Closing~80%
Seller Note~15%
Retained Equity/Earn-Out~5%

Cash at closing has declined slightly in the last year, however, 80% is in line with recent historical averages. If economic conditions soften, we expect that these percentages will remain consistent and that lenders will increasingly look to buyers and sellers to share in the risk of transactions.

Please be aware that every transaction is different and that the data above represent aggregate averages. Numerous factors affect the price, terms and time it takes to complete a transaction.

For a detailed explanation of terms and illustrative examples, please consult our Q3 2019 break down of mergers & acquisitions trends.

Source: IBBA Market Pulse Q4 2019

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Calder Capital, LLC